TREASURIES-Yields fall to one-month lows as data disappoints

    (Recasts with economic data, updates prices)
    By Karen Brettell
    NEW YORK, May 24 (Reuters) - U.S. Treasury yields fell to
one-month lows on Tuesday after data pointed to a cooling
economy as the Federal Reserve presses on with aggressively
hiking interest rates to tackle soaring inflation.
    U.S. business activity slowed moderately in May as higher
prices reduced demand for services, while renewed supply
constraints because of COVID-19 lockdowns in China and the
ongoing conflict in Ukraine hampered production at factories.

    Other data showed that sales of new U.S. single-family homes
fell more than expected in April, likely as higher mortgage
rates and prices squeeze out first-time buyers and those in
search of entry-level properties from the housing market.

    Two-year note yields fell to 2.464%, the lowest
since April 19. Benchmark 10-year note yields
dropped to 2.738%, the lowest since April 27.
    Longer-dated yields have dropped from 3-1/2 year highs as
sharp declines in stocks increased demand for U.S. government
debt, and as investors worry that the Federal Reserve's
aggressive plans to hike rates will tip the economy into a
recession.
    "There has been some domestic interest in this rate rise,
where accounts have come to this decision that a recession is
probably a lot closer than the market thinks," said Tom di
Galoma, managing director at Seaport Global Holdings in New
York.
    Minutes from the Fed's May meeting released on Wednesday are
likely to show that the U.S. central bank remains committed to
tightening policy at a rapid pace as it tackles soaring
inflation.
    Fed funds futures traders are pricing in 50 basis point rate
increases for each of the Fed's June and July meetings, and a
strong possibility of the same in September. The Fed's benchmark
rate is expected to rise to 2.90% by March, from 0.83% now.

    However, some investors also see the possibility that the
Fed could pivot to a less aggressive stance if the economy
weakens significantly.
    Atlanta Fed President Raphael Bostic said on Monday that it
"might make sense" to pause further hikes after the June and
July meetings for the U.S. central bank to assess the impact on
inflation and the economy.
    Inflation expectations also dipped, with breakeven rates on
five-year Treasury Inflation-Protected Securities (TIPS)
, a measure of expected average annual inflation for
the next five years, at 2.87% on Tuesday. They have fallen from
a peak of 3.62% last month.
    The Treasury Department will sell $47 billion in two-year
notes on Tuesday, the first sale of $137 billion in new
coupon-bearing debt this week.
    The U.S. government will also sell $48 billion in five-year
notes on Wednesday and $42 billion in seven-year notes on
Thursday.

    May 24 Tuesday 10:19AM New York / 1419 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.045        1.0624    -0.016
 Six-month bills               1.4925       1.5248    -0.041
 Two-year note                 100-10/256   2.4787    -0.146
 Three-year note               100-78/256   2.6426    -0.148
 Five-year note                100-16/256   2.7361    -0.140
 Seven-year note               100-176/256  2.7651    -0.132
 10-year note                  101-40/256   2.7416    -0.117
 20-year bond                  101-100/256  3.1555    -0.104
 30-year bond                  98-12/256    2.9739    -0.092

   DOLLAR SWAP SPREADS
                               Last (bps)   Net
                                            Change
                                            (bps)
 U.S. 2-year dollar swap        30.75         2.25
 spread
 U.S. 3-year dollar swap        14.25         1.25
 spread
 U.S. 5-year dollar swap         2.00         0.25
 spread
 U.S. 10-year dollar swap        5.00         0.00
 spread
 U.S. 30-year dollar swap      -27.25         0.25
 spread



 (Reporting by Karen Brettell; Editing by Emelia
Sithole-Matarise and Nick Zieminski)

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